A corporation\'s minimum legal capital is established by recording the par or st

Question

A corporation's minimum legal capital is established by recording the par or stated value of the number of shares: A) Issued B) Authorized. C) Subscribed. D) Outstanding. E) In treasury Retained earnings: A) Generally consists of a company's cumulative net income less any net losses and dividends declared since its inception. B) Can only be appropriated by setting aside a cash fund. C) Represent an amount of cash available to pay shareholders D) Are never adjusted for anything other than net income or dividends. E Represents the amount shareholders are guaranteed to receive upon company liquidation. All of the following statements regarding leases are true except A) For a capital lease the lessee records the leased item as its own asset. B) For a capital lease the lessee depreciates the asset acquired under the lease, but for an operating lease the lessee does not. C) Capital leases create a long-term liability on the balance shee, but operating leases do D) Capital leases do not transfer ownership of the asset under the lease, but operating leases often do. not. E) For an operating lease the lessee reports the lease payments as rental expense. A disadvantage of bond financing is: A) Bonds do not affect owners' control. B) Interest on bonds is tax deductible. C) Bonds can increase return on equity. D) It allows firms to trade on the equity E) Bonds pay periodic interest and the repayment of par value at maturity An advantage of bonds is: A) Bonds do not affect owner control. B) Bonds require payment of par value at maturity D) Bond payments can be burdensome when income and cash tlow are low. E) Bonds require payment of periodic interest C) Bonds can decrease return on equity

Explanation / Answer

1) A corporation's minimum legal capital is established by recording the par or stated value of number of shares

Solution: issued

Explanation: The minimum amount called legal capital usually includes the par or stated value of number of shares

2) Retained earnings

Solution: Generally consists of a company's cumulative net income less any net losses and dividends declared since its inception

Explanation: Retained earnings generally consist of a company's cumulative net income less any net losses and dividends declared since its inception. Within retained earnings, companies are allowed to report restricted retained earnings, prior period adjustments or appropriated retained earnings.

3) All of the following statements regarding leases are true except

Solution: Capital leases do not transfer ownership of the asset under the lease, but operating leases often do

Explanation: Capital leases allows the transfer ownership of the asset under the lease at the end of the term

4) An disadvantage of bond is

Solution: Bonds pay periodic interest and the repayment of par value at maturity

Explanation: A disadvantage of bond is that the interest needs to be paid on a periodic basis and the principal (face value) of the bonds have to be paid at maturity

5) An advantage of bond is

Solution: Bonds do not affect owners' control

Explanation: An advantage of bond is that it can increase return on equity and do not affect owners' control

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